John Worth's Response Regarding Future Bank Versus CU Assessments

Two months ago, I wrote a blog post regarding NCUA's Chief Economist John Worth's comparison of future FDIC assessments compared to TCCUSF assessments.

I wrote John Worth asking him what assumptions he used. Here is what he wrote:

"All the FDIC information is drawn from the recent Assessments final rule.

o The rates are the low, midpoint, and upper bound of the ranges in Risk Category I (lowest risk) initial base assessment rate. For example for 2013 that would be 5,7,and 9 from Table 3 in the rule. Of course, some CUs might by in higher risk categories, so this understates the actual assessment burden.

o I use the rates in table 3 until 2018 (assuming DIF < 1.15) and rates in Table 4 thereafter. The rule notes the expectation that DIF will reach 1.15 in 2018. o The assessment rates for Risk Category I reflect the goal of having large and complex institutions bear the burden of moving the DIF from 1.15 to 1.35. Thus the large and highly complex institutions assessment rate. So that concern is fully addressed. o Again mirroring the rule – I didn’t make a downward adjustment for TLGP – that might move the DIF to 1.15 somewhat sooner, so could be a small overstatement, but won’t materially impact the results. During the most recent assessment cycle we forecast no NCUSIF assessment for the coming year. Future year forecasts are highly speculative. The key distinction is that the NCUSIF is near its statutory max, while the DIF assessment are required to bring the DIF back to required minimum. Comparing corporate and DIF assessment provides a reasonable basis for comparison. If there are downturns in economic conditions both the DIF and NCUSIF would perform worse than expected, potentially requiring higher assessments in either case. Finally, as you know over the past 20+ years there have only been a handful of NCUSIF assessments and there have been several dividend payments. Dividends will reduce corporate assessments, but are not factored into the projected assessment levels."